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Clean Tech > L5 > Flashcards

L5 Flashcards

1
Q

What is the total return?- geometric return

A

total return is equivalent to rebalancing the portfolio, reinvesting gains and realising losses with the effects of compounding

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2
Q

What is the arithmetic return - additive return?

A

equivalent to the portfolio to a constant notional exposure, drawing down gains and recapitalising for lossess

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3
Q

What is the average annual returns?

A

ARR represents the implied yield over a specific period - calculated as geometric mean returns

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4
Q

What is the annualised volatility

A

volatility is the range of prices for s security or portolfio of securities

standard deviation over the stated period

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5
Q

What is the sharpe ratio?

A

measures the risk-adjusted average excess return over the risk free rate and is a useful return indicator for performance comparison
- how does the asset perform absolutely relative to its risk profile
- different returns on a high yield bond but adjusted to risk dynamics can be v different

the ratio is calculated by dividing the average excess returns over the risk-free rate by the standard dev of the average excess returns

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6
Q

What is beta?

A

the coefficient that measures the volatility of a stock of portfolio relative to the overall market

a beta below 1 means that the security is relatively less volatile
beta greater than 1 means the security is relatively more volatile

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7
Q

What is correlation?

A

the strength of a relationship between two variables such as a stock of portfolio

statistical figure that measures how two securities move to each other r

range for correlation coefficients is -1.0 to 1.0
the higher the value is, the stronger the relationship between the two variables

negative correlation the two variables move in opposite directions

zero means relationship

1 means move in the same direction

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8
Q

What is the ROA equation?

A

ROA = net income/ total assets

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9
Q

What is ROA?

A

Profitability is assessed relative to costs and expenses - in comparison to asset to see how effectively a company is deploying assets to generate sales and profit

economies of scale can help lower costs and improve margins, returns may grow at a faster rate than assets increasing ROA

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10
Q

What is return on equity?

A

measures a companys ability to earn a return on its equity investments

may increase without additional equity investments
rise due to a higher net income being generated from a larger asset based funded with debt

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11
Q

What is the ROE equation?

A

ROE= net income/shareholder equity

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12
Q

What is a profit margin used for?

A

to measure a company profitability at various cost levels of inquiry
including gross margins, operating margin, net profit margin

margins will reduce as layers of additional costs are taken into consideration - such as COGs, operating expenses, and taxes

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13
Q

What is a gross margin?

A

measures how much a company makes after accounting for COGs - cost of goods sold

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14
Q

How do you work out the gross profit margin ratio?

A

(Gross profit/net sales) x 100

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15
Q

What is the operating margin?

A

the percentage of sales left after covering COGs and operating expenses

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16
Q

How do you work out the operating profit margin ratio?

A

(operating profit/net sales) x 100

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17
Q

What is the net profit margin?

A

a company’s ability to generate earning after all expenses and taxes

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18
Q

How do you work out the net profit margin?

A

(net income/net sales) x 100

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19
Q

What is the relationship between interest rate cycles and economic cycles?

A

Interest rate cycle are generally related to the economic cycle

movements in interest rates should mirror the economic cycle

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20
Q

If the economy is growing strongly and inflation pressures are increasing - what would you expect to happen?

A

Central banks will increase interest rates to slow down the economy and prevent inflation

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21
Q

What is a credit regime?

A

represents a period of rising credit risk and financial market deterioration

analysis highlights these periods over the past 10 years

determined by a 350bps increase in the average option-adjusted spread to capture rising credit risk - there are also periods captured before this to capture pre and post market deterioration befreo the option-adjusted spread spile

22
Q

What were three credit regimes in the past 10 years?

A
  • European soverign debt crisis
  • global economic shocks in 2016
  • covid pandemic
23
Q

What is a credit crisis?

A

caused by deterioration in market liquidity and the credit quality of market participants, resulting in a slowdown in lending activity due to rising levels of credit risk

can cause a breakdown of the financial system and result in a credit crisis

24
Q

What is an option-adjusted spread

A

a measure of credit risk and takes into account embedded options

the credit risk is reflected by the yield-spread differential on a fixed-income security to that of the risk-free rate

i.e. the spread between a investment grad bond or high yield vs a lower quality bond

25
Q

What is a call option vs a put option?

A

Call is to buy

Put is to sell

26
Q

What is a commodity regime?

A

depcits changes in historical market prices for oil, natural gas and coal

select most widely traded commodities for the analysis at the global portfolio level

27
Q

Starting with increased consumer demand and increased money supply can you talk to an inflationary cycle

A
  1. increased consumer borrowing
  2. increased consumer spending
  3. increased corporate profits
    4/ increased employment and wages
  4. increased consumer income

this opposite for deflationary cycles instead of increase put decrease

28
Q

How does the global renewable vs ff portfolio beta compare?

A

renewable is beta of 1.08
ff is a beta of 1.31

ff is more reactive to the market moves

29
Q

How have ff vs renewables portfolio performed and why?

A

Renewables have outperformed FF in all regions
performed better in advancing then emerging markets

More AUM going towards renewables

why
- tech costs are going down - cost based decreasing thus improving margins and profitability
- policy tailwinds supporting investment into this asset class

30
Q

How does FF vs RE compare on leverage?

A

RE>FF leverage

due to contracted nature of the revenue systems
upfront costs and have to finance themselves

advanced RE> FF companies in leverage similar to the global portfolio

31
Q

FF vs RE profitability - ROA?

A

FF companies have dropped in half while RE have improved 3x

Dividend yeilds are lower in RE than FF - but a lack of divide is not always due to a lack of profits

RE did have a negative ROA - costs were significantly higher due but government subsidies

profitability improved for renewables while declining for FF

32
Q

What is the leverage like in emerging markets?

A

lowest in all regsions
- reflects lower level of development of debt margins

renewable companies in china have the highest leverage ration among regions

33
Q

What is the profitability of companies in emerging markets?

A

FF> RE profits

but dramatic reduction in profitability in FF

34
Q

How did RE respond to the three credit regimes?

A

RE reacted in 2011 negatively

but in 2016 and Covid responded more favourably then other markets

oil prices going down and sentiment (govt) toward renewables = many different driving factors
issues with refinancing in oil market

35
Q

What is the relationship between RE and commodities?

A

RE are not v correlated to commodities - not subject to commodity price fluctuations

whereas fuel benefits when oil prices are high and suffer in low commodity markets

the global renewables market is less correlated to the broader market than global ff portfolio
correlation fell during the recent downturn indicating the potential DIVERSIFICATION BENEFITS

36
Q

Are RE more resilient to deteriorating market fundamentals?

A

behaved like a safe asset like a bond

Renewables perform differently

multiple different driving forces - investor flows and government intervention

good asset to diversify risks due to the low correlation with broader markets

37
Q

What was the performance of RE assets in private markets?

A

Unlisted RE outperformed and exhibited lower annualised volatility than the broader unlisted infrastructure assets as well as the listed market benchmark MSCI ACWi

38
Q

What asset exhibited the highest volatility ?

A

global listed ff

39
Q

What asset had the highest returns?

A

global listed renewables

but had higher volatility compared to unlisted indices
–> global unlisted renewables are heavily dominated by European wind

40
Q

What is the average asset size of global unlisted renewables index compared to global unlisted infrastructure?

A

GUR - over 3x samller average asset size than GUI

41
Q

How does GUR compare to GUI in ROA and cap intensity?

A

GUR higher ROA despite having a higer capital intensity

42
Q

What is the average Debt/asset ration of both GUR and GLR?

A

75%

highly leveraged

43
Q

Over the last 5 years how have the cash yeilds been for renewables?

A

higher cash yeilds compared to infrastructure

44
Q

What is the correlation between GUR and the MSCI ACWI?

A

close to 0

UR are good diversifers due to their contracted nature = provides a buffer against shocks

not 100% driven by the same kind of market or conditions - not really correlated to any other commodity

45
Q

What is the correlation between GUI assets to the MSCI ACWI?

A

it is negative

46
Q

What is the relationship between RE and Infra to inflation and bond yeilds?

A

Negative correlated

when bond yeilds are high then performance deteriorates - higher cost of borrowing reduces the ability to finance

but they benefit from low financing costs therefore are good in a 0-1% interest rate environment

47
Q

In portfolio theory what is the golden number?

A

30

48
Q

How would you summarise the performance and volatility of renewables?

A

LR - outperformed FF over last decade and exhibited low volatility in most regions

UL - outperformed Unlist Infra assets and listed market benchmarket over 10 years at a diversified index level

49
Q

How would you summarise the macro conditions?

A

LR were not as negative affected by adverse credit conditions and commodity price volatility as FF

UR provided diversification benefits during credit events and against cyclical changes in macroeconomic conditions such as commodity prices and inflation rates
but
interest rates do have an impact on renewable returns

50
Q

How would you summarise market shocks?

A

LR and UR - showed a good resilience during the pandemic

51
Q

How would you summarise diversification?

A

Correlation analysis shows that there are benefits if listed and unlisted rewnables are added to the market portfolio

52
Q

How are the LT prospects for RE?

A

good given their role in the energy transition, government support and investor demand

Clean Tech (7 decks)

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